Applying for a ₹1 lakh personal loan? Here’s the minimum credit score required

Securing a ₹1 lakh personal loan in India hinges immensely on the strength of your credit profile and your present credit score. These are key indicators of your creditworthiness. Financial institutions and lending banks check this score to determine the risk associated with lending you credit.

According to Mr Rohith Reji, Co-founder, Neokred, “Lenders typically look for a credit score of 700 or above when approving a ₹1 lakh personal loan. A higher score indicates good creditworthiness, increasing the chances of approval and better interest rates. Some lenders may consider lower scores with stricter terms.”

What is the ideal credit score for personal loans?

In India individual borrowers apply for several different kinds of loans, such as, personal loans, home loans, education loans etc. These loans help borrowers in meeting their day to day needs and life expectations. Sometimes loans also help in meeting immediate financial emergencies such as an unplanned surgery or accident.

Now, before distributing these loans, leading financial institutions check several metrics. Credit score is just one such metric, still it holds immense value. Other metrics are past payment history, any earlier default, total debt to income ratio (DTI), consistency of income generation and employment etc.

In India credit scores range from 300 to 900. A higher score signifies better credit health and higher chances of personal loan or credit card approval. Given the minimum required score varies from lender to lender, still a score of 750 or above is generally acceptable and is considered excellent. This score increases the likelihood of loan approval with fairly reasonable terms.

However, there are some lenders that also consider applicants with lower credit scores:

Note: The credit scores discussed above are indicative in nature only. They are not final and are dependent on several other factors such as past payment history, debt to income ratio, past defaults etc. That is why for a case to case basis consider reaching out to the customer service team of your respective lender.

Factors influencing personal loan approval beyond credit score

While credit score is extremely crucial, lenders also consider:

• Stability in income: A steady income assures the lenders of your repayment ability.
• Type of employment: Salaried individuals or self employed professionals with a consistent flow of income for years together are preferred by lenders.
• Age: Applicants generally should be between 21 to 60 years old without any adverse records such as past defaults, police cases etc.
• Total existing debt: A lower debt to income ratio (DTI) boosts the chances of personal loan approval.

What can you do to improve your credit score?

If your credit score is below the the desired level you aspire it to be then you should diligently follow the given guidelines:

• Consistent and timely repayments: Focus on ensuring that all EMIs and credit card dues are paid within the stipulated time.
• Check and limit credit utilisation: Try to keep your credit utilisation ratio below 30% at all costs.
• Regularly check credit reports for mistakes: Identify, check and rectify any inaccuracies in your credit report on an immediate basis. This will keep your credit score protected.
• Avoid several loan and credit card applications: Do note, each application of credit (a personal loan application or a new credit card) can result in a hard inquiry on your credit profile. This has the potential of lowering your score and damaging your credit profile.

Therefore, to conclude it can be stated that a credit score of over 750 can be considered as a safe figure to help borrowers in securing a personal loan of ₹1 lakh from any of the leading financial institutions.

Further, a score of less than 700 is considered weak and can result in complications when applying for a personal loan of ₹1 lakh and can result in rejection of the application or very high interest rates or even non flexible repayment stipulations.

Disclaimer: Mint has a tie-up with fintechs for providing credit; you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit scores. Mint does not promote or encourage taking credit, as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.